The fertilizer ministry’s strategy of encouraging firms to switch from naphtha and fuel oil to gas is likely to actually worsen India’s gas shortage. Fertilizer units currently face a scarcity of around 5.986 million metric standard cubic metres a day (mmscmd), an estimated shortfall of 21%. It is projected that gas demand from fertilizer units would nearly double in the next five years, growing from 41.002mmscmd in the current fiscal to 76.259mmscmd in 2010-11.
It takes 2mmscmd of gas to run a urea plant with a one million tonne per annum capacity.
Analysts are sceptical about the gas availability for the fertilizer units as the gas scarcity has already cramped the power generation capacity addition in the country. Around 89mmscmd of gas alone is required for the power sector by 2012, of which only 40mmscmd is presently available.
For example, NTPC Ltd has seven power generation plants fuelled by gas or liquid fuel, with a commissioned capacity of 3,955 megawatt (MW). All these projects already operate at low-efficiency levels.
“We were promised gas, but it was not delivered which has resulted in the low efficiency levels for our Kawas plant among other gas-based projects,” confirmed a senior NTPC executive.
“We were given the assurance that gas would be available for our gas-based power plants and that is how the gas-based power generation units were planned,” according to a senior power ministry official, who did not wish to be named.
Meanwhile, the shortage is also spurring government-owned fertilizer companies to set up urea manufacturing facilities in West Asia. Out of 37 fertilizer units in the country, seven are closed. The government has fixed a 2008 deadline for all the units to shift to gas, failing which the government plans to slash subsidies to the units.
“If gas is not available for these units, then huge capital machinery will be lying idle all across the sector, in turn affecting the economic growth of the country,” said Kuljit Singh, a partner at accounting firm Ernst & Young.
But Ram Vilas Paswan, the minister for chemicals, petrochemicals and fertilizers, says: “We have been assured by the petroleum ministry that gas will be available for the conversion of our fertilizer units.”
But Singh isn’t so sure. “Historical track record shows that the margins have always turned out to be wrong,” he said. “One should work on huge margins of safety. A 30-40% margin should be assumed while implementing these projects.”
According to the ministry of petroleum and natural gas, India’s current demand (2007-08) for gas is 179.17 mmscmd while supply is 80.54 mmscmd. The shortage is expected to persist through 2012.